Italy to na­tion­al­ize bank, shed $32.5bn in bad loans

The Ital­ian gov­ern­ment is tak­ing con­trol of trou­bled bank Monte dei Paschi di Siena and will try to re­launch it in a plan that in­cludes dis­pos­ing of a mas­sive 28.6 bil­lion eu­ros ($32.5 bil­lion) in bad loans. In de­tail­ing the plan yes­ter­day, CEO Marco Morelli said that the dis­posal of the non­per­form­ing loans was “the most rel­e­vant is­sue” in the Euro­pean Com­mis­sion’s ap­proval this week of the res­cue plan, which had been drawn up last year. The Ital­ian gov­ern­ment will in­ject 5.4 bil­lion eu­ros into the bank, giv­ing it a 70-per­cent stake.

It is the third cap­i­tal in­jec­tion in re­cent years for the bank, Italy’s third-largest, as it strug­gles to re­cover from poor man­age­ment and a heap of bad loans that com­pounded dur­ing Italy’s long eco­nomic cri­sis. Un­der the bad loan dis­posal plan, 26.1 bil­lion eu­ros will be bun­dled and sold at 21 per­cent of gross book value, the vast ma­jor­ity to the gov­ern­men­tor­ga­nized At­lante II fund, while the bank re­tains 5 per­cent.

That com­pares with a price equal to 33 per­cent of value un­der a pre­vi­ous re­launch plan an­nounced last fall but which had to be re­vised after the bank failed to come up with an in­vestor to in­ject 5 bil­lion eu­ros. The loss on the dis­posal will be booked by the bank in the first half of this year, while the trans­ac­tion is ex­pected to be com­pleted by next June. The re­main­ing 2.5 bil­lion eu­ros in bad loans will be dis­posed in a sep­a­rate pro­ce­dure. The five-year plan calls for a net in­come above 1.2 bil­lion eu­ros by 2021 as the bank re­fo­cuses on re­tail and small busi­ness cus­tomers. Dur­ing the pe­riod, the bank will be un­der strict cost con­trols, cap­ping top ex­ec­u­tive pay, re­duc­ing em­ploy­ees by a net 5,500 and shut­ting branches as it moves to­ward dig­i­tal­iza­tion.

“The aim of man­age­ment is to proac­tively re­cover what we did lose, now that we can op­er­ate in a clear set of rules on what the bank needs to do on its cap­i­tal struc­ture and on the liq­uid­ity pro­vi­sions,” he said. “I think that Monte de Paschi will walk, and run, pretty much along ex­pec­ta­tions.” Morelli called the plan a “key mile­stone in the process of re­turn­ing to a growth path,” but said the process would nec­es­sar­ily be slow.

The Euro­pean Com­mis­sion’s ap­proval had been a key stick­ing point in the res­cue of the bank, as EU rules now try to avoid us­ing tax­payer money to save banks. But the Com­mis­sion cleared the gov­ern­ment cap­i­tal in­jec­tion after it was agreed that the bank’s share­hold­ers and ju­nior cred­i­tors would take losses first, for an es­ti­mated 4.3 bil­lion eu­ros, to min­i­mize the bill for the gov­ern­ment. — AFP

MI­LAN: A man waits for the slid­ing doors to open to exit a Monte dei Paschi di Siena bank branch. — AP